The stock of Indian Railway Finance Corporation (IRFC), the financing arm of the Indian Railways, has been on a roll lately. The share price of IRFC hit a new 52-week high of Rs 66.70 on Monday, surging 20 per cent in intra-day trade on heavy volumes. In the last two trading sessions, the stock has soared 32%, outperforming the broader market.
The rally in IRFC shares has also boosted its market capitalization, which crossed Rs 80,000 crore mark on Monday. The company now ranks 68th in terms of overall m-cap, ahead of its peers like IRCTC and CONCOR.
What is driving the IRFC stock?
There are several factors that are contributing to the bullish sentiment around IRFC. Here are some of them:
- Strong business model and growth prospects: IRFC is the sole entity that raises funds from the market to finance the capital expenditure of the Indian Railways. The company has a robust business model with assured returns, low risk, and nil non-performing assets (NPAs). IRFC has also witnessed substantial growth in its business over the years, with cumulative funding to the railway sector crossing Rs 5.50 trillion and assets under management reaching Rs 4.66 trillion as of March 2023.
- Strategic partnerships and collaborations: IRFC has signed several memoranda of understanding (MoUs) with other public sector enterprises to strengthen its cooperation in financing and developing railway infrastructure projects. For instance, IRFC has signed an MoU with RITES, a consultancy firm under the Ministry of Railways, to identify mutual areas of collaboration and provide financial assistance to projects that have backward or forward linkages with the railways. Similarly, IRFC has signed an MoU with India Infrastructure Finance Company Ltd. (IIFCL), a financial institution under the Ministry of Finance, to support railway infrastructure projects with forward and backward linkages to the railways sector.
- Beneficiary of government’s infrastructure push: IRFC is well-positioned to benefit from the government’s focus on infrastructure spending to achieve its target GDP of USD 5 trillion by FY25. The government’s National Infrastructure Pipeline (NIP) and PM Gatishakti initiative aim to provide a comprehensive and integrated framework for infrastructure development in the country. IRFC, as a premier financial institution with a track record of mobilizing large funds from both domestic and offshore markets, can play a significant role in supporting India’s infrastructure sector, driving economic development and growth.
What do experts say about IRFC?
Analysts and experts are bullish on IRFC and expect the stock to continue its upward momentum in the near future. Some of the reasons for their optimism are:
- Attractive valuation: Despite the recent rally, IRFC is still trading at a reasonable valuation compared to its peers and historical averages. The stock is trading at a price-to-earnings (PE) ratio of 9.6x and a price-to-book (PB) ratio of 1.2x as of September 4, 2023. These are lower than the industry average PE of 12.8x and PB of 1.6x. Moreover, IRFC has a dividend yield of 5 per cent, which is higher than most other PSU stocks.
- Positive outlook for railways sector: The railways sector is expected to witness strong growth in the coming years, driven by increasing passenger and freight traffic, modernization and expansion of network, electrification and digitalization of operations, and introduction of new services like bullet trains and private trains. These factors will boost the demand for funds from IRFC, which will in turn enhance its revenue and profitability.
- Scope for re-rating: IRFC is likely to see a re-rating in its valuation as it gains more recognition and visibility among investors. The company has recently been included in several indices like Nifty Next 50, Nifty Midcap 100, Nifty Midcap Liquid 15, Nifty Midcap Liquid 30, Nifty Midcap Liquid 50 etc… This will increase its liquidity and attract more institutional investors. Moreover, IRFC is also expected to benefit from the government’s disinvestment programme, which may unlock value for shareholders.
IRFC is one of the best performing stocks in the railways sector, thanks to its strong fundamentals, strategic partnerships, and favorable macro environment. The stock has delivered impressive returns to investors in the past few months.
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